Cash Value Life Insurance: Are You Getting Screwed?

Cash Value Life InsuranceFor a blog that loves cash value life insurance, I'm about to pull inspiration from a source that might leave many of you scratching your head. About a week ago, Leo Laporte gave a great keynote speech at the New Media Expo (formerly Blog World) that spoke specifically about the advertising world. His speech was about the nuance new media has regarding advertisers and how their adoption of new media will be a bit of a challenge. But there was a comment within that speech about how advertisers (i.e. marketers) view you and me and what (or should I say, who) they target.

Brand is the Refuge of the Ignorant

Leo recounted a story about a pitch he made to executives at Tech TV about a show targeted to computer coders. He brought his statistics about the number of coders in the United States and made a presentation about how this show could pull in thousands of well paid Americans to a network that was desperate for viewers.

After his presentation one executive pulled him aside and broke the bad news to him, “smart people” was not the sort of cohort Tech TV was seeking to attract, because its advertisers knew that their marketing tactics only worked on people who were less apt to apply their grey matter while sitting through a commercial. Brand is the refuge of the ignorant is the old advertising mantra.

How does this Apply to Life Insurance?

I'm guessing a large number of the people who will happen upon our site will have encountered the work by a few marketing and psychology experts, even if only in a cursory fashion. One in particular whose work I've always admired is Robert Cialdini. If you've been around marketing and sales for a while, none of what he has written about is likely to be earth shattering to you.

But anyone who has at least a vague exposure to the weapons of influence has likely made one very important observation: they don't work on a micro basis all that well, nor do they tend to work when one is more tuned into what's going on (Daniel Kahneman refers to this as system two thinking).

This Poses a Problem for the Life Insurance Industry

The problem that the life insurance industry faces is the fact that it wants to target the coders and other like minded professionals because they have better buying power than the ignorant types who are likely to fall for the commercial that says doing x will net you more friends, but it has to somehow deal with the fact that these people are generally more discerning.

How then does the industry deal with the issue of convincing the more accomplished that what it manufactures is what they want? By building products that they want and explaining how to use them? Don't we wish. I'm afraid their approach is a tad more nefarious than that.

Time is Money

The industry typically avoids the highly cerebral. In fact, most agents lament the notion of working with engineers and other stereotypically highly analytical professionals. Instead they dial their focus onto the busy liberal arts focused professionals (sorry attorneys) general business owners. Why? Because they tend not to spend an oppressively large amount of time reviewing details and asking questions. They don't view themselves as having time to do so, and they want to continue to convince themselves and others that they are decisive like any good business owner or critical thinker.

Obscurity: the way to Deal with an Intelligent Counter Party

The other common leg up the industry exploits to its advantage is its ability to operate in a somewhat higher degree of obscurity. This coupled with a brand name can be the perfect recipe for turning an otherwise well educated professional who prides him or herself on making intelligent decisions into “ignorant” low hanging fruit.

You see, it's not until someone comes to know that there are alternative options regarding cash value life insurance design that he or she can even begin to understand the relative good or badness to his or her decision. And this fact is exactly what we've set out from the beginning to shine a very bright light on.

So Obscure, the Agents don't know what's Right and Wrong

Late last week, Brantley gave you all a slight insight into the sort of things we deal with on a daily basis.

Truth is, this problem is borne out of this obscurity–it even tricks the agents and other “experts.” So how does one ensure that he or she place him or herself on as close to a level playing field as possible regarding the industry's obtuseness?

One could simply avoid it (hey we do full disclosure around here). But it should come as no shock to anyone that I fundamentally believe that there are many benefits that can be extracted by drilling in and sorting through the vernacular. Benefits that far exceed the draw backs to the risk posed by the obscurity.

Putting Companies to the Test

Insurance companies hate to be spread-sheeted. In fact, most of them work hard to make doing this as much of a PITA as possible without being too overt about it. Problem for them is some of us (i.e. us) have a huge upper hand given the marvels of modern technology and we're a lot sharper than they on how to go about getting their data into our software to crunch the numbers and put them up against each other.

Don't Fall Prey

I'm not an apologist for the insurance industry. I think they manufacture some great products that can significantly augment your overall financial portfolio. But that doesn't mean I'm oblivious to the dumb things the insurance industry (and several other industries) do.

The insurance industry tries to employ the same manipulative tactics everyone uses (in large part because all of their great marketing ideas come from the same collection of consultants who haven't come up with anything new in over 100 years). Only difference being that when they target a brighter segment of the population they also attempt to conceal things as a way to make up for the fact that sharper prospects aren't as likely to fall for traditional gimmicks.

We believe strongly that agents should be your ally in weeding through the nonsense. The conversation should be just that, a conversation, and not some fast talking agent who dictates what it is you should do and questions your morality if you veer from his or her suggestions or question their validity.

So how do you keep from getting screwed? Stay vigilant and ask tough questions–obviously. But may I also suggest that you use a service that seeks to compare as many companies' products as possible. I happen to know where you can get access to that, click here–shameless self promotional plug.

I've never known even the staunchest of nay-sayers who stuck to their categorical proclamation that all cash value life insurance is bad after they truly understood how it works. Of course, there are those who choose to remain ignorant, because becoming enlightened would be bad for business.

I'll leave you with this thought. I've questioned the validity of owning cash value life insurance more times than most people who have read this ever will. I put my ideas to the test all the time, and have even encountered situations where (gasp) it wasn't a good idea and made someone very well aware of that. The beauty isn't just in the product itself, but in the specific design. In order to get that correct, you need someone with a deep understanding of cash value life insurance and a patience for designing the right plan for you.

About the Author Brandon Roberts

Brandon launched the Insurance Pro Blog in July of 2011 as a project to de-mystify the life insurance industry. A specialist in the design and application of life insurance cash accumulation features, Brandon is one of the foremost authorities on the subject of coordinating life insurance cash values in a financial plan.

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